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Highlights

Also on KPMG.com

New Zealand’s (NZ) ‘new’ Customs and Excise Act is expected be in force from 1 October 2018.The new Act introduces a number of changes to NZ customs law, which are mostly business friendly, but there are some fishhooks that can be missed. One of these fishhooks relates to post-importation valuation adjustments.

This is of particular interest to importers that are part of multinational groups, where there may be additional charges payable to related parties after the goods have been imported, e.g. year-end transfer pricing adjustments are common post-importation valuation adjustments.

What’s changing?

Under the current Customs procedures, post importation adjustments are disclosed by filing regular reconciliations (usually annually) or by filing a voluntary disclosure to Customs. Once the reconciliation / disclosure is accepted, Customs issues a confirmation letter and an assessment if there is any additional goods and services tax (GST) and duty resulting from the adjustment.

The ‘new’ Customs Act on the other hand, introduces a ‘provisional value’ scheme for making post-importation adjustments. The scheme allows ‘eligible’ importers to declare a provisional import value when the goods are initially cleared for import and then ‘true-up’ the value declared at a later time (within a prescribed timeframe) when all the information required to finalise the value is available, .e.g. when the amount of the year-end transfer pricing adjustment is known. However, not all importers that have post-importation adjustments may be eligible to apply the provisional value scheme.

The eligibility criteria under the new Act divides importers into three groups:

Importers that have advanced pricing agreements.

Importers that have valuation adjustments relating to certain prescribed additions (e.g. royalties, license fees) which are unknown at the time of import.

Importers that get approval from Customs to apply the provisional value scheme (i.e. the ‘all other importers bucket’).

The first two categories of importers have an automatic right to apply the provisional value scheme, but all other importers wishing to apply the provisional value scheme will have to rely on Customs’ discretion. If an importer cannot get into the provisional value scheme, then their fall-back option for disclosing a post-importation adjustments is to file a voluntary disclosure.

What does that mean?

If an importer cannot apply the provisional value scheme and discloses a post-importation adjustment by lodging a voluntary disclosure, then under the new Act, it will be subject to an interest charge on the resulting GST and duty shortfall. This creates additional costs to an importer from disclosing the adjustment under the new Act which was not present under the old regime. This creates a disincentive for importers to continue to disclose post-valuation adjustments under the new Act, i.e. a non-compliance risk. There are ways to manage the cost and risk on both sides.

For Customs, we would encourage them not to be too restrictive in applying their discretion in allowing importers into the provisional value scheme, as this would promote voluntary compliance. The concern from Customs may be that importers will abuse the scheme by declaring an artificially lower provisional value initially in order to delay paying the GST and duty; however, we think the risk of this happening in practice is low for two reasons.

Importers that would apply to get into the scheme would be, by and large, importers that want to be fully compliant.

There are very strong deterrents under the Customs Act (i.e. financial penalties and in the extreme cases, imprisonment).

For importers, their first point of call would of course be to try to get approval into the provisional value scheme (which we hope all importers that have a genuine need to apply the scheme will be able to get). Failing this, importers will need to be more pro-active in monitoring and disclosing any post-importation adjustments as soon as they are known, so any potential interest costs are minimized - not an easy task especially when you’re part of a multinational group where multiple layers of approvals may be needed to file a simple disclosure with the Customs authority!

So, are the new rules and procedures for making post-importation adjustments a recipe for non-compliance? Maybe not, if importers and Customs work together to ensure that the new scheme works.

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